9 Clicks to Amazon, 0 Clicks to Barnes/Noble. 5 of 9 clicks outside of United States.

2 Purchases in 3 Days (Projects to Sales of 10 copies, life-of-book, based on prior tests at a $75 price point).

Most of the advice you read suggests that free is best. This analysis demonstrates that folks will pay for content. Clearly, there is an "elasticity" between free and $95, isn't there? But that's why we analyze this stuff. You are probably building this kind of intelligence into your marketing strategy, right?

By the way, if we evaluate short-term benefits on sales generated, then 2*$95 > 20*$0.99 > 110*$0.00. Just saying ...

Most important ... pay attention to the "funnel", or what I call "low probability" events.

2,500 blog subs and 2,700 Twitter followers.

About 200 actions from at least 3,000 and probably closer to 3,500 unique individuals.

Around 25 purchases.

Maybe 6% of individuals take action, with maybe 15% of the 6% (about 1% of the total audience) purchasing something.

These low-probability events are not well understood by marketers who don't focus on math. They reflect the modern reality of a digital world. I repeatedly hear that "new media doesn't scale", be it mid-media like search or e-mail, or new media like social / mobile. Scale isn't as much an issue as the fact that new media is a "low probability event". When it works, it scales times ten. For the other 99% of us, this is the outcome we must be satisfied with.

April 27, 2011

In the eBook (Amazon Kindle, B/N Nook, $0.99), the Executive Team struggles with the concept of improving a business that has not grown in eight years.

Frequently, I talk about how much easier it is to grow by finding new customers than it is to grow by improving customer retention (i.e. loyalty). Out on Twitter, the pundits beat me up over this concept, but in the real world, there's the harsh reality that it is terribly difficult to find ways to measurably improve customer loyalty.That bring us to the concept of new customers. Catalog marketers have an enormous advantage over nearly every other discipline, in that catalogers actively rent names at $0.06+/- a pop from Abacus. This allows the cataloger to control exactly how many new customers are acquired, on an annual basis.

To me, there are three ways to manage customer acquisition.

Pay for the opportunity (catalog list rental, television advertising, paid search, etc). Older marketers, those who honed skills prior to the advent of the internet, adore this discipline. Getting one of these marketers to think different is very hard.

Permission. Think Groupon ... you give Groupon your email address, making you a prospect. They have the permission to send you daily email offers, and eventually you bite, becoming a Groupon customer. In rare cases, this methodology "blows up", and you go from zero to a billion in a year. In most cases, you don't fundamentally increase sales in the short-term, this is a long-term proposition.

Probability. This is what new media advocates promote. They suggest that you attempt viral, social, or mobile strategies that "spread the word", helping you grow. I call this "probability" because the probability of success is low. You can follow every best practice in the book, and you improve your chances of success from 1 in 1,000 to 1 in 950. But when you have success, you leap-frog the competition.

Marketers trained in "pay" have a very challenging time with permission or probability. Those trained in "probability" determine that "pay is dead".

In this eBook, we consider these three methodologies without ever directly referencing them. Ultimately, it's not that we are "catalogers" or "mobile marketers", it comes down to an issue of what we believe is the most effective way to acquire new customers. Where do you stand? Pay? Permission? Probability?

April 26, 2011

Without directly mentioning it, I spend a lot of time discussing the concept of "narrow, deep skills" in the eBook (Amazon Kindle, B/N Nook, $0.99).

Narrow, deep skills are a marketing problem.

"He's only a search person, he knows nothing about the business."

"She's only an email marketer, she knows nothing about the business."

"He's a 57 year old catalog guy, what could he possibly know about modern digital marketing?"

Social media is probably the worst. The disconnect between making quarterly sales and profit numbers and having "conversations" with customers couldn't be greater. In no way does this make social media wrong, it's simply an issue of "narrow, deep skills".

If you have ten employees, one will take the initiative to learn about other areas of the business.

The other nine employees need leadership. They need somebody to teach them, not "how" to do search marketing for instance, but the concepts surrounding why the business needs what the business needs.

In the eBook, Libby Benson is the Social Media Director. Nobody spent any time with her, explaining what happens if catalog marketing is removed from the marketing mix. To Libby, you just have conversations with customers, and the sales follow. Nobody is mentoring this individual.

You are an EVP or CEO, so you have the responsibility to teach your employees why your business works they way it works. Help your employees understand why you can't eliminate certain areas of your business without dire consequences.

In the presentation, I discuss trends I'm observing and the impact these trends will have on catalog marketing, moving forward. In particular, I spend considerable time on how mail/holdout tests will be used to ultimately save ad-dollars, allowing catalogers to compete with companies offering free shipping 24/7/365.

When you're done reading the presentation, please forward it to a friend/co-worker/colleague.

In the eBook, you'll get all of the tools necessary to create your own Digital Profiles.

A 40mb dataset that you can practice creating Digital Profiles with.

The SPSS code that creates Digital Profiles.

My commentary on the programming and analysis process.

Yes, I am ready for your next question.

"Are you insane? I have to pay $95.00 for this? This is 2011, stuff is free everywhere on the internet. Why can't you give this to us for free, or for a reasonable cost like $0.99?"

If that's your question, then keep the following in mind:

Every detail to create your own Digital Profiles, except for the SPSS code, has been published on this site. Simply search for Digital Profiles, and you have all of the content you want for free. Is that a bad thing?

In the comments section, list all of the vendors who give away all of their trade secrets for free on a blog. Whatever work I do for clients, I always publish details of the analysis, for free, on this blog. I hope that is acceptable to you.

Get your corporate credit card out, and purchase the eBook. Download the code, download the dataset, and create your own Digital Profiles. Then apply what you've learned with your own data!

You read my daily missives digitally, not in print, right? You don't complain about blog posts not being in print. So download the Kindle program for your PC, pay $0.99 (cheaper than $7.95 or $19.95, more money in your pocket), and read the eBook!

During the next two weeks, we'll chat about the themes in the book, and how the themes relate to your business.

April 21, 2011

There are many, many methods for acquiring new customers. Let's think about a few methods.

Buying Customers:

This takes many different forms. Catalog marketers pay Abacus $0.06, +/-, to gain one-time access to a name/address, then mail a catalog to the customer. An online marketer pays Google $0.50 for clicks that appear after paying for the right to appear on a search page. A car company pays CBS $300,000 for a thirty-second commercial. Buying customers is easy, and it is costly.

Merchandise:

Think Verizon. They offer you a new product (the iPhone), and they steal market share from AT&T.

Concepts:

Eddie Bauer expands into Outlet stores in the 1990s, giving them access to a demographic/psychographic that wouldn't normally shop a full-price store.

Permission:

You are reading this blog via permission, right? You subscribe via RSS or E-Mail, and as long as I don't mess up, you give me permission to continue to speak with you each week. Permission is a front-loaded marketing tactic ... you invest time instead of money, with the hope of long-term payback. Permission doesn't boost quarterly numbers, does it?

Channels:

Microsoft expands into Retail stores in malls, offering products to customers that might not normally purchase the products. Expansion into channels can be expensive ... expansion into retail saddles one with debt.

Word of Mouth:

This is the opposite of expansion into Retail. Retail, you see, is what I call a "high probability event". Open a store, customers arrive. Of course, you pay a dear price for access to a high probability event, often resulting in crippling debt. Word of Mouth is opposite, what I call a "low probability event". There is no "best practice" for something becoming viral ... for every Facebook, there are tens of thousands of social networks that may be better, but never gain traction. For every Angry Birds, there's thousands of games, many better, that go nowhere. For every Rebecca Black, there's ten thousand artists with infinitely better music that go nowhere.

So much of what we're being taught today are methods to use technology to increase the likelihood of success in a low-probability event. If we just follow best practices, if we just use technology and be authentic and be great, if we just encourage "engagement", everything will take care of itself. Instead, all we are doing is improving the probability of success from 1 in 1,000 to 1 in 950.

This is why the vast majority of people dabbling in social media report almost no success.If you want to acquire a new customer, consider the tactics available to you. Are you paying up-front with money? If so, you are likely to acquire a new customer, at significant cost. Are you paying up-front with time/permission? If so, you are not likely to have short-term success. Are you pursuing a low-probability event? If so, you are not likely to ever have success, but if success comes, it's gonna be fantastic!

April 20, 2011

Most of the marketing literature tells you to focus on increasing customer loyalty.

The easiest way to grow your business is to find new customers.

I shared this image with you, back in February. I conducted an analysis of annual retention rates across fifty or so businesses ... as you can see, retention rates vary by +/- 10%, over time.

In other words, if you currently retain 40% of last year's buyers, you should not expect to find a marketing strategy that allows you to retain 80% of last year's buyers ... you may find a strategy that increases loyalty to 44%, or you may fail, causing loyalty to drop by 36%.

So much of the marketing literature focuses on loyalty. Here's the deal, folks. Loyalty matters much more if you are Wal-Mart, Starbucks, McDonalds, Nordstrom, Target, any place you purchase from at least once a month. In those situations, getting a customer to go from 12 purchases a year to 13 purchases a year is easy, and it has a huge impact on the profit and loss statement.

Now pretend you are Pottery Barn. Folks, you don't buy from Pottery Barn once a month, do you?

Here's another key point. The vast majority of us work for businesses that generate less than a billion dollars of sales a year, right? Well, in those cases, the best way to grow is to find new customers. Heck, I can recall being at Nordstrom back in 2005, and one of my analysts produced a slide that showed that we had something like 3-6% market share in womens apparel ... and we sold more than a couple billion dollars of womens apparel a year. We could still find new customers, and we were an eight billion dollar company.

You don't have 3-6% market share, in all likelihood, do you? That being the case, go out and find new customers. It's easier to find a new customer than it is to increase customer loyalty, and if you do find a way to increase customer loyalty, you'll increase loyalty among prior buyers and the new buyer you just acquired ... a multiplicative effect, right?!

Here's the problem. It's REALLY HARD to increase customer loyalty. If it were easy to bump retention rates by 20%, everybody would be doing it, and all of our businesses would be growing at unfettered rates, right?

Now go back and look at new customer acquisition counts over the past decade. You'll quickly notice that YOU decide new customer acquisition counts ... you make changes to your marketing budget, and you see an immediate cause-and-effect, don't you?

New customers matter. Best of all, you control your own destiny. So few loyalty initiatives push the peanut. So many new customer acquisition investments pay off over time.

April 18, 2011

In the next two weeks, I will publish something new ... a novella (i.e. longer than a short story, shorter than a novel) titled 'Gliebers Dresses: Catalogs on Trial'. Below, enjoy an anticipated list of frequently asked questions. And then please buy the novella, ok?

Question: Will the novella be available in print?

No. And I can already hear folks howling ... "I don't have a Kindle, how will I be able to read this?" or "I don't have an iPad, how will I be able to read this?", or "are you an idiot, you need a multi-channel approach of print and digital".

Here's the deal, folks. Sometimes, you have to test things. You have to try to do something out of the ordinary, or how are you ever going to learn how to chart a course to the future? So I am going to test a digital-only strategy. I will tell you how a digital-only strategy performs.

Even more important ... why should I charge you $7.95 so that Createspace can take $3.00 and and Amazon can take $3.00 and I get somewhere short of two dollars and you get the book in a week and you spend money compensating Amazon and Createspace for something that you have no idea will be any good? How does that benefit you? You know what benefits you? $0.99 where I get very little money and you spread the word when you like the novella ... if I don't do a good job, you don't spread the word, and I don't make money. Isn't that a better business model?

Question: How do I gain access to the book if it isn't available in print?

Question: Why should I buy this, when you've always written these stories for free?

Again, how do you ever learn if you don't test things? If you follow best practices, you're going to end up with a very boring, sanitary, mediocre outcome. Let's try something different.

Question: Why Fiction?

Where do I start? I've written real posts, I've tweeted real messages, and I've written the Gliebers Dresses story. You are more likely to absorb information if the message is written in a fictional story. If I write the truth, folks have a tendency to criticize not the entire message, but a fraction of the message, throwing out the entire message as a result. I've learned that it is really hard for a reader to critique a fictional character. So, we'll go with fiction!

Question: What is the story about?

In this novella, newly appointed CEO Roger Morgan is struggling with a floundering catalog business model that did not achieve the lofty expectations of experts who predicted that a multi-channel business model would produce unfettered success. So, Mr. Morgan orders that catalog marketing be "put on trial". Chip Cayman, well-known new media consultant, will play the role of the prosecuting attorney. Faith Kelley, executive administrative assistant, will defend catalog marketing. Mr. Morgan will be the Judge. The Executive Team will be witnesses. If catalog marketing is found guilty of being irrelevant in a new media environment, Gliebers Dresses will make dramatic changes to the business model. If catalog marketing is found innocent, expect a significant doubling of efforts in catalog marketing, going forward. What do you think will happen?

Question: Why should I care about this novella?

When is the last time your Executive Team had to truly defend your business model? Imagine being responsible for DVDs through the mail at Netflix ... could you defend the investment in your channel? Or being the retail executive at Blockbuster ... could you defend a continued investment in stores? Or being the CEO of Cuddledown of Maine ... could you defend your business model against a new media expert demanding that you stop mailing catalogs and instead supplement your business with iPad apps and social media and trigger-based e-mail marketing and paid search methodologies that are deeply integrated with your merchandising system? Could you, as a business leader, defend your channel in a court of law? How would you answer the tough questions? Could you be objective? Do you have the data to defend your channel? Give this a read, and then see if your Executive Team should be put through the paces that the Gliebers Dresses team is put through.

Your opportunity to purchase this novella is coming, in less than two weeks, maybe even later this week!! Be ready.

Be careful when reviewing faux-metrics or vanity-metrics like "likes" or "influence" or "engagement". In this case, with the most successful Facebook brand leading the way, total net sales are not following suit.

Also be careful when reviewing the marketing literature of the attribution community. These folks will link sales to social media, and yet, as we see here, there's not much to look at in terms of sales and Facebook Likes.

Note at 2:53pm PDT: Take a look at the ad that was served to me when I published this post.

April 17, 2011

We set goals and objectives at the end of 2010. Anytime you set goals and objectives for the year, it is important to revisit them from time to time. Let me know how you are performing against each objective.

Objective #1 = New Customers: On the existing marketing budget, increase the number of new customers by 15% in 2011.

Objective #2 = Page Counts and Frequency: Through September 30, test alternate page counts, identifying the page count that yields the deepest circulation, most demand, most profit, and most new customers. Roll-out a strategy for 2012 that significantly decreases page counts to average and marginal customers while maintaining contact frequency.

Objective #3 = Mobile: By June 30, implement a mobile app that is congruent with the lifestyle needs of your target customer. By December 31, accurately measure the impact this mobile app has on customer spend.

Objective #4 = Social Media: Make social media the top objective for your customer service team, and for your marketing team. Require each marketing employee to spend 20 minutes each day maintaining a corporate Twitter presence, and capture every tweet from every individual who communicates with your employees, integrating that data into your customer data warehouse. By November 30, craft a plan for using social media as a customer service competitive advantage in 2012, based on what you learn about social media through November 30. Or, prove that Social Media is largely meaningless and does not contribute to the bottom line!

Objective #5 = E-Mail and Search: Conduct database analyses that demonstrate how customers interact with catalogs, e-mail, and search. For instance, how many searches are driven by catalog mailings? Thoroughly know the role of each channel in the customer experience! By March 31, present findings to Executive Team, by April 30, present findings to every department in the company. By May 31, develop an integrated marketing plan that incorporates your findings.

Objective #6 = Profit: Demonstrate that every employee in the marketing department is able to calculate profit by February 28. Assign one test in 2011 to every employee in the marketing department, requiring each employee to write up the results of the test, down to profitability. Share the results of each test with every employee in the company. Also, increase the profitability of all marketing activities by 15% in 2011 on the same level of ad spend.

Objective #7 = Web Analytics: By December 31, link all website visits to existing customers in the customer data warehouse, and begin implementing website visitation behavior in all catalog and e-mail selections. If this cannot be done in-house, contact the folks at any large Web Analytics provider for tips and suggestions.

Objective #8 = Benchmarking: Visit a non-competitive but similarly-sized catalog brand for a two-day "sharing session". Each party spends one day sharing how they review their business with the other party. Open and honest discussions are highly encouraged. Do this by April 30, 2011.

Objective #9 = Succession Planning: Identify two individuals who are qualified to replace you, and create a plan for enhancing their odds of succession. Do this by March 31, 2011.

Objective #10 = Catalog 2015: By October 31, 2011, craft a thesis called "Catalog 2015". Illustrate to the Executive Team where the future of catalog marketing is headed, what are the threats to the industry, what are the competitive advantages, and what is the likely contact strategy and new customer acquisition plan required to optimize catalog and online marketing in 2015. What are the demographics and geographic characteristics of your customer base? Will your customers be alive, or be in a prime spending cohort in 2015? What do you do if it costs 2.5x to 3x as much to mail a catalog in 2015 as it costs today? What do you do if mail delivery is limited to three days a week? What do you do if catalog productivity drops 30% in the next five years? What do you do if you have to have free shipping, all day, every day, 24/7/365? Share the future direction of catalog marketing and the response of our company to future challenges with every employee by December 31, 2011.

Objective #11 = Discounts/Promotions: By February 15, demonstrate to every employee in the company what annual sales and annual profit would look like if all discounts and promotions were discontinued. Create a full-price profit and loss statement, and a discount/promo profit and loss statement, on an annual basis.

Objective #12 = Merchandise: By June 30, thoroughly understand the items that must be featured on the home page, on key landing pages, in e-mail campaigns, and in the first twenty pages of every catalog, in order to maximize company profitability. Implement your findings into all Q4 campaigns.

April 14, 2011

No, not an A/B test (sorry analytics gurus), but rather, a change in direction regarding the content published on this blog. For the past three days, I eliminated math from my discussions.

Result: Readership is up about 35%.Observation: The more complicated, "math-based" posts cause people to hire me.

This is the challenge we all face. It is easy to let popularity dictate content. It is much harder to sacrifice popularity and short-term gains for long-term benefits.

Speaking of long-term benefits, I've always said that this blog generates 70% of my consulting revenue. This spring, the relationship is changing:

40% blog.

45% booklets.

15% word-of-mouth.

The booklets were published last fall, but this spring, they are producing long-term benefits. This is another quirk that business experts have a hard time understanding. Go out to Amazon, and take a look at where each of my books rank, in terms of sales.

By any account, folks would look at this and say "Why do you waste your time on this?" In fact, one of the most reputable catalog marketing consultants (you'd know this person) told me just that ... said I was "wasting my time" writing content that is published in print, or via Kindle. And yet, 45% of my business this spring comes from booklets written last fall.

Short-term success and long-term success are measured differently. Both play a role, mind you, but the elements of long-term success are much more nuanced, requiring patience.

April 13, 2011

Too often, we give search the "short stick". I got into this a few weeks ago with a traditional marketer ... the person bellowed at me "HOW DID THE CUSTOMER END UP SEARCHING FOR ANYTHING, SOMETHING HAD TO CAUSE THE CUSTOMER TO SEARCH, AND THAT SOMETHING WAS BRAND EQUITY AND OFFLINE MARKETING, RIGHT?".

Alright.

That's an argument used by a person trying to defend the past. I hear the argument every week.

I hear this one, too ... often bellowed at me "THE CUSTOMER IS JUST USING GOOGLE TO GET TO OUR WEBSITE, IT HAS NOTHING TO DO WITH SEARCH AND EVERYTHING TO DO WITH FINDING OUR URL."

Alright.

If the customer cannot remember your URL, and needs Google to help navigate to your website, well, isn't that a fundamental problem with your brand? Heck, I see the same problem when I go into Google Analytics ... I look at search terms like "MINE THAT DATA" and then I see that the customer visiting my blog after that search is visiting for the 22nd time. Well, that means that I am failing, I am not providing compelling enough content to cause the customer to bookmark my website, to subscribe to my RSS feed, to subscribe via e-mail, or to subscribe via Twitter. It means that I failed. And it means that you, as a marketer, failed if the customer must use Google as an intermediary to get to your website ... you pay Google a tax for not being important enough to the customer.

So often, we view problems one way, when we could view problems through a different lens. Instead of asking whether offline marketing drove the customer to Google, we could ask the question differently ... "Why did the customer have to research other products via Google if our offline marketing was so effective?"

"Leading brands are harvesting the unrealized potential of the mobile experience."

"In the social economy, gratitude is the new PayPal."

"Without a viral presence, you may as well be Montgomery Wards".

"In order to succeed in today's challenging business environment, one thing is certain ... you must be great."

When reading all of this new media stuff, ask yourself a question:

"What is the author selling when writing content?"

Often, the author is selling thought leadership ... designed to move a client into the consulting purchase funnel.

Not that there's anything wrong with that ... I do it all of the time, a guy's gotta eat, right?

The challenge, of course, is to tie the content to reality. A catalog marketer is not likely to experience unfettered success by replicating the viral aspects of a video created by a thirteen year old musician.

Next time you read something from a thought leader, ask the thought leader to demonstrate one instance where the thought leader implemented her strategy at a brand you compete with, and helped that brand experience a ten percent sales increase, on an annual basis. If the thought leader provides you with appropriate references, then by all means, partner with the thought leader!

April 12, 2011

During the next two years, you're going to hear a lot of people telling your to integrate all of your data sources.

It's 2000 all over again. Back then, experts demanded that you integrate online data with offline data, for a "360 degree view" of the customer. You followed suit, and you learned that it was important to integrate data to better understand your customer. You also learned that you didn't generate the unfettered profits promised by business leaders.

Over the next two years, there will be numerous products and services that allow you to append "social profiles" to your customer base. There will be a gold rush to describe how customers use social media, an attempt to make the information actionable.

In the short term, why not ask your customers, at checkout, if the customer is on Facebook, or if the customer is on Twitter? Just give the customer a couple of boxes to check. Then add that information to your customer database. Analyze customer behavior by these simple indicators.

If you're a classic cataloger, you may find that you can reduce annual contacts by a couple, just by knowing this information.

April 11, 2011

This week, head over to your database guru, and ask her to add "age of head of household" to your database.

It doesn't cost all that much to add this information.What you learn will more than make up for the cost of adding the information.

Age information didn't matter much back in 2000 ... customers generally acted in a similar manner.With the advent of search, mobile, and social, there are significant changes in customer behavior that can be better understood with an age overlay.

About 65% of my clients append this information. The information seldom predicts who will repurchase. The information almost always foretells what the future of marketing looks like. For classic catalog brands, the overlay is eye-opening.

April 10, 2011

Here's one of the most interesting quotes of 2011, from a catalog leader:

"How do I create a catalog that an online customer will like?"

I'm not convinced that we are asking the right question. Try asking this question:

"How do I create an experience that an online customer will like?"

In 1995, the cataloger appealed to a mass audience. Today, the cataloger appeals to a niche audience. This isn't good or bad, it simply "is" reality. As a result, there are many customers that the cataloger could potentially appeal to:

Age 70+ = Likes catalogs, mails order with check via post office.

Age 60-69 = Likes catalogs, shops over the phone after receiving a catalog.

Age 50-59 = May like catalogs, shops online after receiving a catalog.

Age 40-49 = Transitional customer, online savvy, may like catalog brands, not catalogs.

Age 30-39 = Online shopper.

Age 20-29 = Social shopper?

Now, I realize these are gross over-generalizations. But we need to make generalizations like this if we want to think about how we should contact a customer. How do we maintain a relationship with a 34 year old urban customer? How do we maintain a relationship with a 64 year old rural customer?

The 64 year old rural customer appreciates the catalog.

We need to do some work to figure out how to have a relationship with a 34 year old urban customer. At some point, we need to cultivate relationships with the under-40 audience, relationships that do not include catalogs, if we want to be around in ten years, right?

April 07, 2011

And, clearly, there are three channels that form a "triangle" of customer behavior.

Customers who order via the Telephone.

Customers who order via the Website.

Customers who order via E-Mail Marketing.

Because the "newbies" label is near "website", we can surmise that the website is generally most responsible for the acquisition of new customers.

Because the "loyalists" label is near "search", "mobile", and "social", we can safely surmise that the best customers are focused on hip, new marketing channels.

Telephone shoppers are off on their own island, aren't they?

And while email customers are reasonably close to loyalists, there is a bit of distance between email and hip, new marketing channels. This happens, especially when email marketing is viewed as a discount/promotion channel ... you end up customers who adore discounts/promos, and as a result, you have customers who don't participate in the entire ecosystem.

It is interesting that search is near mobile/social, and is generally near the loyalist customer. For this business, search is a tool used by experienced customers. It's quite likely that loyal customers are doing a lot of comparison shopping. Strategically, this is important, because loyal customers clearly aren't as loyal as one might hope ... the customer is obviously looking for the best deals.

Mobile/Social, in this case, are aligned with loyal customers. This is important from an attribution standpoint. It likely means that these channels are cannibalizing existing channels, and are not causing incremental orders. You want to look at your customer metrics, to understand if customers are placing incremental orders or not. If customer order frequency is not increasing, it is quite likely that Mobile/Social are being given too much credit. More important, these channels matter, because best customers are using them. Management should not expect a boatload of new customers from either channel.

In general, the customer is acquired via the website, then migrates toward search/mobile/social, and to some extent, to email marketing.

Obviously, this is a simple example, with just six generic channels. Your business has considerable complexity, with many channels. Use this methodology to understand how your customers migrate through the lifecycle.

April 06, 2011

If you don't like geeky math, please skip this post, because I am about to show you how the sausage is made!

I have eight variables in this model ... weighted percentage of historical dollars spent in email, search, mobile, social, over the phone, and on your website. You get to choose the attribution model you want to use to assign weighted dollars to channels. There are two additional variables ... 1/0 variables for newbies and for loyalists.

The component score coefficient matrix is important, because we multiply the coefficients in that table against standardized values for each variable, yielding the two factor scores that, when plotted, yield the Lifecycle Marketing and Touchpoints map at the start of this post.

April 05, 2011

In our example, there are six channels (your mileage will vary ... some folks use a hundred different channels/touchpoints in their analysis).

Each variable is expressed as a percentage of weighted historical spend. For instance, a customer that only ever purchases via the telephone will have 0% values for email, search, mobile, social, and your website, and 100% for phone.A customer that purchased via search last year and via mobile this year might have 66% values for mobile, 34% for search, and 0% values for all other channel-based variables.

Finally, I add two 1/0 variables into the mix ... a variable that indicates whether the customer is a new customer in the past year (1 = new, 0 = otherwise), and a variable that indicates whether the customer is a loyal customer (1 = loyal, 0 = otherwise).

April 04, 2011

The tech punditocracy demands that we move our lives "to the cloud". We see lovely commercials where a woman doesn't like the way family members look in a picture, so she goes to the cloud to solve her problems. "Yeah cloud" she deadpans as she alters the sour image portrayed by her family.

The easy thing to do here is to jump all over Epsilon. That's pointless. You think those employees don't feel rotten? How'd you like to be an e-mail product manager or sales rep at Epsilon today? What are the hurdles this poor person will face when trying to sell e-mail delivery services to Lands' End later this week? Have you ever made a catastrophic mistake? I made a big mistake back in 1995 ... I mailed the worst customers instead of the best customers. Oh boy. You view catastrophic events differently once you've caused one to happen.

The hard thing to do is to blame the cloud.

We're going through a multi-year process of giving up control of our businesses to "the cloud". Today, we happily outsource so much of our business to the cloud. Abacus, Z-24, those were two of the early "cloud-based" pioneers, right?

The deeper issue is our relationship with the cloud. How much control of our business do we hand over to the cloud? How much control of our personal life do we hand over to the cloud?

Are we willing to cope with the consequences of a cloud that controls us, of a cloud that both helps and harms us?

Mary in Modesto asks ... I'm really fascinated by attribution models right now. These scientists are somehow able to parse an order into pieces, allocating each piece to the advertising channels responsible for causing the order. It's so neat! Why don't you talk more about attribution models?

Kevin ... Let's pretend that you visit a restaurant. At the end of the meal, you're still hungry. You have three choices, apple pie, hot fudge sundae, and rhubarb cobbler. So you're going to get something, and you are leaning toward apple pie. You ask the waiter if he has any specials today, and he says that the rhubarb cobbler is 15% off, and you get free ice cream and he'll heat your apple pie for you. You decide to order the apple pie. The waiter walks back to the cash register, and on a piece of paper, he places a "one" (1) next to apple pie ... he is attributing the order of apple pie to his sales technique. Is he right? Well, you would want to parse your apple pie order into pieces ... the menu, obviously, should get some credit, because without the menu, you wouldn't have gone down the dessert path in the first place, right? The waiter deserves credit, because he helped make the sale happen, in theory, right? And the promotion deserves credit, because 15% off rhubarb vs. no deal on the hot fudge sundae vs. free ice cream and heated apple pie sways customer demand, right? How you allocate the percentages makes all of the difference ... and then there's one little detail left outstanding ... you were going to order apple pie regardless!!!! In other words, the waiter and the discount/promo strategy deserve no credit, 0%, because the decision was made prior to the initiation of marketing. This is what attribution experts struggle with ... the most important part of the attribution process is the determination of "organic demand", demand that would happen anyway, without advertising. And that's why I don't talk about attribution very often ... the whole endeavor is a big guess. Personally, I like to leverage mail/holdout tests in email and catalog marketing to influence my attribution activities, when required to do so. Hint: If you are an e-commerce or retail brand, the majority of your orders happen organically, without the aid of marketing ... if your attribution vendor claims your orders are largely due to marketing activities, quietly seek bids for a new attribution vendor.

Bill in Ocala asks ... What do you make of this big "relevancy" trend in email marketing?

Kevin ... Let me ask you a question, Bill ... when was the last time that you planned an email marketing campaign that was supposed to be "irrelevant"? Recently, we talked about "the frightening", a situation where an old-school channel is being buffeted by new channels offering "new rules". Email marketing is going through "the frightening", courtesy of social media. Anytime a channel goes through "the frightening", interesting and unusual responses are expected. Suddenly, email marketing weakness due to social media isn't the fault of the channel, no, weakness is due to you, the silly email marketing director at a big, dumb brand. You are the reason that email is being cannibalized by social. If you only produced relevant content coupled with triggers (vs. irrelevant batch and blast programs), your email program would be just fine. When a channel goes through "the frightening", blame becomes an issue. The email marketing community wants to blame you for not promoting relevant content. It's your fault, Bill.

Ross in New York asks ... This name your own price stuff at Gap is really innovative, isn't it?

Kevin ... Sure, it is innovative. I also wonder why innovation requires price cuts? Apple innovates by producing products you didn't know that you wanted, at prices that are, on average, greater than the market average. Listen, retailers are going through "the frightening". Gap experienced stock prices around $20 to $25 in 2001, stock prices are around $20 to $25 in 2011. Comp store sales have largely decreased over the past decade. That's "frightening"! So you have to do something. And trust me, somebody thinks that product is the answer. But product takes a long time (ask J. Crew), so in the mean time, you have to do something. The question, of course, is what do you do with what you learn? What do you do when your customers tell you that they only want to pay $35 for a $49 pair of khakis? If you have a viable strategy for using this information in a way that doesn't damage your full-price business and your use of the information can potentially increase profitability, then have at it!

April 03, 2011

The number one question I received, over the past week, goes something like this:

"What does L.L. Bean's free shipping announcement mean for me? How do you see this decision impacting my business?"

I am not Nostradamus. But there are a couple of thing we know about free shipping. Let's explore what we know:

Known = Customers Love Free Shipping: When a customer shops in a store, the customer knows that the merchandise was shipped, from a distribution center, to the store. The customer knows that there was a cost associated with getting the merchandise to the store, the customer knows that the brand absorbed the cost of shipping the merchandise to the store. Online, the customer knows that other brands offer free shipping. The customer knows that you offer free shipping in November and December. In other words, the customer has an expectation that cannot be changed.

Known = Enormous Demand Lift: If you don't apply a hurdle to free shipping, you require a monster lift to cover the cost of free shipping. For many folks I work with, you need a 30% to 40% increase in demand in order to cover free shipping without a hurdle. Here's a profit and loss statement with a 10% increase due to free shipping:

Current Bus.

w/ Free Ship

Demand

$100,000

$110,000

Net Sales

80.0%

$80,000

$88,000

Gross Margin

50.0%

$40,000

$44,000

Less Ad Cost

$25,000

$25,000

Less Pick/Pack/Ship

$8,000

$14,960

Profit

$7,000

$4,040

Profit: % of Net Sales

8.8%

4.6%

That doesn't look so good. Now, let's look at the profit and loss statement with a 30% lift:

Current Bus.

w/ Free Ship

Demand

$100,000

$130,000

Net Sales

80.0%

$80,000

$104,000

Gross Margin

50.0%

$40,000

$52,000

Less Ad Cost

$25,000

$25,000

Less Pick/Pack/Ship

$8,000

$17,680

Profit

$7,000

$9,320

Profit: % of Net Sales

8.8%

9.0%

That looks better. What we know is that it is going to be unlikely for anybody to get a 30% increase in demand when nearly everybody is offering free shipping. We know we won't cover the cost of free shipping via increased demand.

Known = Returns Erode Profit: A low return rate won't save a brand that moves to free shipping, but can cushion the blow. There will be a renewed focus on minimizing returns, because each return means a lost revenue opportunity --- a lost revenue opportunity that covers the cost of free shipping.

Known = Gross Margin Means Everything: I'm not sure why nobody ever talks about gross margin. Everybody talks about the importance of the size of a button on your home page, and that's probably important, but it won't help you address how to absorb the cost of free shipping. Take a look at this profit and loss statement, at a 45% gross margin level:

Current Bus.

w/ Free Ship

Demand

$100,000

$110,000

Net Sales

80.0%

$80,000

$88,000

Gross Margin

45.0%

$36,000

$39,600

Less Ad Cost

$25,000

$25,000

Less Pick/Pack/Ship

$8,000

$14,960

Profit

$3,000

($360)

Profit: % of Net Sales

3.8%

-0.4%

That's not good news --- when gross margin isn't robust, it is hard to absorb free shipping. Now, look what happens at a 55% gross margin.

Current Bus.

w/ Free Ship

Demand

$100,000

$110,000

Net Sales

80.0%

$80,000

$88,000

Gross Margin

55.0%

$44,000

$48,400

Less Ad Cost

$25,000

$25,000

Less Pick/Pack/Ship

$8,000

$14,960

Profit

$11,000

$8,440

Profit: % of Net Sales

13.8%

9.6%

See, even with free shipping, this business takes a bit of a beating, but is still profitable ... the only thing that changed in this equation is the gross margin line. Here's what we know ... we know that brands with a robust gross margin line will be those that move to free shipping first.Known = There Is Waste In Marketing: You're not going to want to hear this one. Catalog marketing is fraught with waste. My Catalog Marketing PhD projects routinely find 20% or 30% housefile ad cost opportunities with minimal impact on top-line sales. There is sooooo much waste in catalog marketing. We know that smart companies are going to fund free shipping by significantly reducing catalog marketing expense against certain housefile segments. Catalogers know that it is fatal to reduce customer acquisition activities, so, again, the reductions will come among housefile segments, especially among younger, suburban/urban customers who shop online or via mobile/social. The profit and loss statement will look something like this:

Current Bus.

w/ Free Ship

Demand

$100,000

$100,000

Net Sales

80.0%

$80,000

$80,000

Gross Margin

55.0%

$44,000

$44,000

Less Ad Cost

$25,000

$20,000

Less Pick/Pack/Ship

$8,000

$13,600

Profit

$11,000

$10,400

Profit: % of Net Sales

13.8%

13.0%

Notice that profit is reasonably similar ... you absorb the added cost of free shipping, you lose demand by not mailing certain customers, you gain demand by having free shipping, with the result being that the p&l looks about the same.

Known = We Do What Is Easy: It is hard to reduce return rate. It is hard to improve gross margin. And it is contrary to everything that a cataloger stands for to reduce circulation. So, we're going to do what is easy. We'll trim our staffing levels at the call center by 30%. We'll demand that distribution center employees find ways to improve productivity by 30% or they, too, will be fired or will have to accept lower wages. Heck, we'll ask salaried employees to "share the pain" and take a 5% pay cut and pay more for health care, and we'll eliminate profit sharing contributions in the process. This is what people do, and we do it because it is easy to do. It's not right, but it is easy.

Prediction = We're All Moving To Free Shipping: It's not even worth discussing. Companies with a healthy profit and loss statement will simply make the move, and will make the move in the near future. Companies with average profit and loss statements will wait a bit longer, and will be forced to make improvements in the profit and loss statement to cover free shipping. Companies with slightly below average profit and loss statements will go to free shipping with a hurdle (i.e. $100), and will cut marketing expense to fund the shift. Companies with lousy profit and loss statements will wait the longest, will take a sales hit as a result, and will have to transform elements of the profit and loss statement in order to go to free shipping. These companies will complain a lot. Companies with big ticket items will be able to charge for shipping on big ticket items, but will have to move to free shipping on everything else.

Kevin Hillstrom

Kevin Hillstrom, President, MineThatData

Kevin is President of MineThatData, a consultancy that helps CEOs understand the complex relationship between Customers, Advertising, Products, Brands, and Channels. Kevin supports a diverse set of clients, including internet startups, thirty million dollar catalog merchants, international brands, and billion dollar multichannel retailers. Kevin is frequently quoted in the mainstream media, including the New York Times, Boston Globe, and Forbes Magazine.

Prior to founding MineThatData, Kevin held various roles at leading multichannel brands, including Vice President of Database Marketing at Nordstrom, Director of Circulation at Eddie Bauer, and Manager of Analytical Services at Lands' End.

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